1. What is a 1099 Employee?
2. Why is the 1099 Employee designation important?
3. Do not designate someone as a 1099 Employee if:
4. Designate someone as a 1099 Employee if:
5. Examples of what a 1099 Employee vs. W2 Employee
6. Common mistakes with 1099 Employee
7. Frequently asked questions
8. Steps to file a 1099 Employee

Updated June 25, 2020:

What is a 1099 Employee?

A 1099 employee is one that doesn't fall under normal employment classification rules. Independent contractors are 1099 employees. Instead of having a permanent worker that takes direction from the company, your business would use an independent contractor who works under their own guidance.

The difference between a 1099 employee and others is usually easy to recognize. One example of an independent contractor is a painter hired to paint your home. They will not be your employee after finishing the job.

If you need a permanent employee, the 1099 distinction is not correct. Someone who has to show up to the office, follow a company dress code and always answer to their supervisor is most likely a traditional employee.

Why is the 1099 Employee designation important?

The 1099 employee designation is important due to taxes. If you hire an independent contractor, you avoid a large tax burden. The 1099 employee typically handles their own taxes.

If you have a traditional employer-worker relationship, you must pay several taxes, including:

  • Medicare

  • Social Security

  • Unemployment

  • Income

In addition to paying Medicare and Social Security taxes, you must also withhold these taxes from the paychecks of employees. Avoiding this can be beneficial to your company, but incorrectly designating someone as a 1099 employee can get you into trouble.

Flowers Foods, a Georgia company, was sued after their drivers claimed they were cheated out of “tens of millions of dollars” due to being misclassified. In 2015, FedEx ended up paying $228 million due to incorrect classification.

The 1099 employee designation is an important one, and you cannot afford to make a mistake.

Do not designate someone as a 1099 Employee if:

  • Company provides training on a certain method of job performance.

  • Tools and materials are provided.

  • Employees must follow set schedule.

  • You provide benefits such as vacation, overtime pay, etc.

There are sometimes nuances to these rules. In the “hiring a painter” example, you will likely pay for the paint and supplies needed for the job. This does not make them a traditional employee, so you must consider the entire employer-worker relationship.

Designate someone as a 1099 Employee if:

  • They follow their own schedule.

  • Use their own tools.

  • Can refuse certain jobs.

  • Finishes assignments using their own method.

Examples of what a 1099 Employee vs. W2 Employee

You may not have to go through the headache of figuring out who qualifies as a 1099 employee. If you have any of the following workers, they probably aren't 1099 employees.

  • Office secretary.

  • Waitress at restaurant.

  • Cashier.

  • Call center representative.

  • Line worker.

If you occasionally use any of the following workers, they are likely 1099 employees.

  • Freelance writer.

  • Truck driver who can turn down routes.

  • Plumber.

  • Electrician.

Common mistakes with 1099 Employee

  • Not having a written agreement that contractor will be independent of control.

  • Exercising too much control over independent contractor.

  • Basing classification on industry norms.

  • Failing to file Form 1099-MISC.

Frequently asked questions

  • What forms do I file?

    For traditional employees, file a W-2. For independent contractors, file the 1099-MISC.

  • What if I incorrectly classify a worker?

    Companies that misclassify workers could pay huge fines and be liable for money owed to employees.

  • Do I need a written contract with a 1099 employee?

    It's not usually legally required, but doing so will protect your business.

Steps to file a 1099 Employee

If you're using a 1099 employee, you will first want to create a written contract. If you pay them $600 or more over the course of a year, you will need to file a 1099-MISC with the IRS and send a copy to your contractor.

If you need help with employee classification or filing the appropriate paperwork, post your need in UpCounsel's marketplace. UpCounsel screens out 95% of lawyers so you'll only receive the best legal help.